July 08, 2011

Market Wrap For The Week Ending 8-July-2011

Here is our latest issue of market insights. Enjoy!

In This Week's Issue
• Weekly Snapshot
• Weekly Barometers
• Weekly Chart
• Words Of Wisdom
• Recommended Read
• Recommended Video

Weekly Snapshot
• U.S. consumer borrowing rose $5.1bn in May after a revised gain of $5.7bn in April (AP)
• U.S. nonfarm payroll employment was essentially unchanged in June +18,000 (BLS)
• U.S. unemployment rate was little changed at 9.2% versus 9.1% in May (BLS)
• The Bank of England’s keeps interest rates at their record low of 0.5% (FT)
• The ECB increased its benchmark rate by 25 basis points to 1.5% (Bloomberg)
• Australia kept interest rates on hold; the cash rate remains at 4.75% (Economy.com)
• Industrial producer prices in Euro area were down by 0.2% from April to May (Eurostat)
• John Paulson's hedge fund made $550M from bonds it bought in Lehman Brothers (FT)
• Moody's became the first rating agency to cut Portugal's rating to junk status (Reuters)
• China raised rates for the 5th time in eight months; one-year lending rate is now 6.56%  (WSJ)

Weekly Barometers

st-2011-0708   fx-2011-0708

Weekly Chart
U.S. employment numbers were disappointing showing only a meager 18,000 new jobs that were created in the non-farm sector.  That number was far below projections and also well below the weekly estimates from several private job surveys.  Stock markets were caught off guard opening about 1% lower from the previous day. The unemployment rate went up just slightly to 9.2% which is a concern of course as it remains stubbornly high.  More concerning though are the implications for the long-term unemployed.  While companies are sitting on huge piles of cash, they have essentially been in a buyer's market for talent since the recent recession picking only the most qualified of workers to slowly fill new positions as they come available.  Job creation remains one of the big missing pieces of the giant economic recovery puzzle.  Please consider the weekly chart below, courtesy of Calculated Risk.


Words Of Wisdom
It never fails. Warren Buffett sure has a way of suggesting seemingly easy solutions to some of the most complex economic and financial dilemmas. In an interview with CNBC, Warren Buffett claimed: “I can end the deficit in five minutes.”

How?  You just pass a law that says that any time there's a deficit of more than 3 percent of GDP, all sitting members of Congress are ineligible for re-election.

Could it really be that easy?  Please enjoy this illuminating interview.


Recommended Read
We’re back to the theme of “currency wars” first brought to light in the fall of 2010 by Guido Mantega, Brazil’s finance minister. Please consider: 
Currency wars not over, says Brazil - By Chris Giles and John Paul Rathbone.

Recommended Video
Never shy of throwing the odd curveball, James Altucher has a history of coming up with unusual assessments of markets.  This time is no different. Please consider Four Growing Industries With No Future.  Among several other controversial and counter-intuitive predictions, Altucher also maintains:

"Gas prices will fall to less than $1 a gallon and that basically puts solar, wind, ethanol and any other alternative energy out of business."

I can barely begin to imagine what $1/gallon gasoline prices would do the economy as a whole. How would that impact consumer prices, inflation and interest rates?  A nirvana for consumers or a preview of Japan?

Good luck and good investing!

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